- Email: [email protected]
Funding innovation: Moving the business forward
Funding innovation: Moving the business forward Gary F. Henry, BSEE
Gary F. Henry is the Principal Consultant of G F Henry and Associates, a management consulting firm based in Charlottesville, Virginia. Mr. Henry has more than 30 years of distinguished experience, including CEO, CFO and COO roles in both established and start-up companies. Gary was named an Ernst & Young Virginia Entrepreneur of the Year in 2001. (Surgery 2016;160:1135-8.)
THE GREATEST CHALLENGE an entrepreneur faces, next to developing a value proposition, is underwriting the enterprise. Entrepreneurs may easily spend half or more of their time fundraising. The primary role of a chief executive officer is to ensure the company is properly funded, and this is so demanding that contemporaneously advancing business goals while raising money is nearly impossible. Understanding various sources of cash and when and how to seek them is key to the success of a company. But first, define what your life goals are; if building a business to pass on to your children or to indulge a lifestyle is your desire, be very cautious about accepting money from other people: it comes at a price. Conversely, if you are building a business to see a profitable exit, raise money with that goal firmly in mind. Finally, ask yourself the key question: is this a true, standalone business, or am I better off teaming with an industry partner and licensing my technology? A number of years ago, it was easier to do early stage licensing deals, but nowadays the large strategics would rather pay more for a derisked technology that is showing traction in the marketplace and can fit seamlessly into their portfolio. STAGES OF FUNDING: MAKING THE DEAL A sensible and achievable business plan is critical. Raise money to fund activities that add value, securing intellectual property, proving concepts, and achieving other milestones. Raise as
Accepted for publication June 21, 2016. Reprint requests: Gary F. Henry, BSEE, GF Henry and Associates, 2989 Stony Point Road, Charlottesville, VA 22911. E-mail: [email protected]. 0039-6060/$ - see front matter Ó 2016 Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.surg.2016.06.056
much as you need but not too much; however, when money is available, it is usually sage to accept it. Define the runway you need and your personality is comfortable with. Basic funding stages include (1) seed money, (2) friends and family, (3) angel investors/family offices, (4) venture Capital (VC), (5) mezzanine financing (and bridge loans), and (6) initial public offering (IPO) or sale of all or part of the business to a private equity company. Not every start-up requires every stage, as some lucky entrepreneurs will exit early through a sale to a larger business. Many technology start-ups will also take advantage of nondilutive funds in the form of grants. SEED-STAGE FUNDING As the name implies, seed money launches the company. It is typically used to create and assess the team, define the initial concept, value proposition, intellectual property, potential market, scalability, and a business maturation plan (a high-level project plan from founding to exit often presented as a Gantt chart). Seed-stage capital is typically invested as a loan or in exchange for common stock. Seed money can come from the savings of the entrepreneur, credit cards, a home-equity line of credit or, commonly, friends and family---also known as “friends, family, and fools.” Self-funding or “boot strapping,” where the founder’s money alone is used, certainly focuses the mind and encourages others in your belief. ANGEL INVESTOR–STAGE FUNDING If with seed money you have defined and engaged target customers to validate your business model and mitigated any show-stopping issues, it might be time to pitch wealthy individuals referred to as angel investors. Individual angel investors typically invest in sums of $10,000, $25,000, SURGERY 1135
1136 Henry
$50,000, $100,000, or even more. Be sure that any investors you take on board are accredited: people who either have $1 million in liquid assets or make $200,000 annually. They are investors who the government considers wise and wealthy enough to decide whether to invest in high-risk start-up companies. Angels may be experienced investors, are often entrepreneurs themselves, and some may become valued advisors to your start-up. In some areas, angels may band into a network, which might invest in million dollar aliquots such as the Boston Common Angels or Bay Area Band of Angels. Family offices are investment professionals who manage the assets of the very wealthy. There are >500 billionaires in America and many more families with a net worth in the hundreds of millions, and many love to support life-science enterprises, especially if they address an area that has touched their life personally. Deal terms vary greatly, some angels can be as intimidating as VCs. Others might invest based on a simple, 2-page agreement. All investing relies more on the people than the technology, so focus on building good and trusting relationships. All transactions to purchase stock are driven by valuation; how much is each share of your company worth? The natural tendency is to set the bar high so that each investment dilutes your holding as little as possible, which is fine if all goes well; however, in the event of any delay to hit milestones, you might face a “down round,” where new stock is sold at a significant discount thereby rapidly diminishing the strength of your holding. Setting the price for stock either needs a sophisticated lead investor, like a VC or banker, or the parties may agree to do a “convertible note,” whereby invested money bears interest and can convert to stock at a later round where pricing occurs, usually with some bonus such as discounts on stock or additional warrants. Other benefits to investors, be they angels, family offices or VCs are so-called “preferred stock,” where they get interest on invested money and a multiple of return upon exit. Be careful with such deals---you may think you have given up 40% of your company in exchange for capitol, only to discover that you may end up with <10% of an exit deal! The Angel Resource Institute HALO report from Willamette University reported median national average angel round grew during 2015 to $725,000 in the third quarter (Q3), up 45 percent from 2015Q2. Angel valuations assigned to companies went from $2.5 million in 2015Q1 to a
Surgery November 2016
median of $5 million in 20153Q. Keep in mind that both size of investments and valuations are volatile and run in cycles just like the broad market. Valuations are, of course, highly subjective, but if someone pays $100,000 for 10 percent of a company, the company is, in theory, worth $1 million. With maturation, corporate valuation is repeatedly tested, adjusted, and confirmed by investors until it more accurately reflects realistic, risk-adjusted market value. But as noted above, percentages sold may be deceptive to the neophyte. For instance, an angel thinks your company is worth $1 million and agrees to invest $100,000. To calculate the angel’s ownership, one has to add how much the company is worth before new money comes in, the premoney valuation, and the investment: $1,000,000 premoney valuation + $100,000 angel investment = $1,100,000 postmoney valuation. Now divide the investment by the postmoney valuation $100,000/$1,100,000 = 1/11 = 9.091 percent. So the angel owns 9.091% and the prior owners are diluted by 1/11 or 9.091%. Even though your percentage of equity may be reduced through dilution, the value of your investment should be going up. A smaller slice of a much larger and growing pie is better than a larger slice of a small one. How do you find angel investors? Cold calling angel groups near you is an option, and expect to be thoroughly screened and vetted before a meeting. But angels, like most investors, will pay more attention to deals recommended by someone they know. Look for personal introductions if at all possible. While initial friends and family money gives latitude, angel and future VC rounds focus on the exit strategy of the company. The priorities of VC investors are a significant return on their investment and a timely exit. A sound philosophy is to include your most-valued employees in an employee incentive plan, eg, ESOP or profits interest, which ties them to you with a vesting schedule and allows them to share in success. VENTURE CAPITAL (VC)–STAGE FUNDING At your first opportunity, build a secure online data room so you are always prepared for any level of due diligence. With the right team on board, possessing the requisite skills, accounting and legal documents in order, and intellectual property qualified through a freedom-to-operate agreement
Surgery Volume 160, Number 5
confirmed by your patent attorney, you may be ready for a VC round. Venture capital firms invest other people’s (“limited partners”) money according to defined objectives such as target geography, technology or industry. Funds invest much larger amounts, typically >$500,000 and into the millions. The general partners of the venture firm are the fund managers and are paid by the investors of the fund, about 2 percent of a fund annually as a fee and about 20 percent of a fund’s gains as their “carry,” or share of the profits, aligning their incentives on making the best return in the shortest timeframe. Beware, dealing with VCs is challenging! The first VC investment is typically called the “series A” round. Subsequent rounds are similarly called “series B,” “series C,” and so on. With these larger investments, VCs are much more formal in their dealings than angels. Term sheets, which summarize the principal points of the deal, can be quite complex and due diligence is rigorous. The final agreements can be quite lengthy, and professional, legal advice is a must. Preferred terms for VCs are common and may include vetoes over major strategic decisions, protection against being diluted in future rounds, and the right to get their investment plus a return back first if the company is sold as noted above. In return for their money VCs demand control and receive, at the least, a seat on the board of directors and may want to take over your company at one extreme. The good ones will provide valuable guidance as part of the management and/or board and help you find potential acquirers for an exit. A WORD ABOUT NEGOTIATION Negotiation experience is of tremendous value; if your advisory or leadership team does not have it, consider adding this skillset. With both investors and acquirers, the greatest leverage is competition. If an investor knows you have other investors lined up, they will be a lot more eager to close---and not just due to concern about losing the deal. If other investors are interested in you, your enterprise must be worth investing in. It is the same with acquisitions. No one wants to buy a company until someone else wants to buy it. Then everyone wants to buy that company! The key to closing deals is to never stop pursuing alternatives. When an investor says he wants to invest in you, or an acquirer says they want to buy you, do not believe it until the check has cleared the bank. Your natural tendency when an investor says “yes” will be to relax and go back to building
Henry 1137
the company. Do not be tempted. You have to keep looking for more investors---if only to get your current investor to act. MEZZANINE FINANCING (BRIDGE LOANS) After VC series “A,” “B”, and/or “C” rounds, you may or may not have a mezzanine round, which is a type of bridge loan. At this point, you are either in revenue stage or are going to be soon. You are borrowing money just to get you ready, because you are anticipating one of the following types of opportunities that require additional funds: (1) an IPO, (2) private equity acquisition, (3) an acquisition of a competitor, or (4) a management buyout. To engage these opportunities, you may opt to tap into mezzanine financing. In the case of an IPO, mezzanine financing is often used 6 to 12 months before the IPO and then the proceeds of the IPO are used by the company to pay back the mezzanine financing investor. IPO Finally, companies can raise money through selling stock to the public in what is called an IPO. The opening stock price for the IPO is typically set with the help of investment bankers who commit to selling X number of the shares of the company at Y price, raising money for the company and, of course, they take a substantial cut. Unlike all other funding types, the stock price of the company is set by the public market of investors. Once the stock is out, it is traded through a stock exchange (like the National Association of Securities Dealers Automated Quotations System, the New York Stock Exchange, or the American Stock Exchange). An IPO requires an army of people to enact. To learn more about IPOs, check out any one of the many books found on the topic. GRANT FUNDING Nondilutive funding by grants fits at any of these stages and is attractive, because grants endorse the value of your science to investors, raise the enterprise value, and do not dilute your holding! It is possible to apply for and be awarded a grant anywhere from conception of the idea onward. Grants are offered from a variety of sources, including the Small Business Innovation Research (SBIR) program, the Small Business Technology Transfer (STTR) program, the National Institutes of Health (NIH), the National Science Foundation NSF (Table), and many more government and private sector sources. Awards are competitive and convey value beyond the
1138 Henry
Surgery November 2016
Table. Grant funding opportunities Grants SBIR phase I SBIR phase II SBIR phase III STTR phase I STTR phase II STTR phase III R01 NIH research project grant R03 NIH small grant
Source US Government, SBA US Government, SBA Private and non-SBIR allocated financing US Government, SBA US Government, SBA Private and non-SBIR allocated financing NIH NIH
cash. Consider attending a workshop on the type of grant you are considering or seek out experienced help. Also, advocacy health groups exist who will invest donated money, such as cancer and Alzheimer’s associations, etc. Their missions include directing donated money into research. In applicable cases, these special interest groups can be a source of grant funding as well. COMMON MISTAKES No matter the type of funding stage entrepreneurs finds themselves in, mistakes can derail the best intentions. The most common and deadly mistake is to have ignored customer input, or worse, not gotten any customer input on your fabulous invention at all. Savvy investors of any type always seek customer validation of the business proposition. The founders may think their innovation is the greatest creation since the Internet, but if customers are not wowed, the company has little value. Another common mistake is having an ineffective pitch. Entrepreneurs, starting from the creation of the company, should work continuously on refining their investment pitch and keeping it in sync with the accomplishments of the start-up and its growing understanding of the target market. The demand for refinement never stops. And its value should never be underestimated. If you do not succeed at raising serious interest from investors, your start-up dies. Seek high-quality advisors who have “been there, done that.” Having the wrong management team is also a common error. More funding pitches succeed
Duration
Amount
6 mo 1y
;$150K ;$1.0M
1y 2y
;$150K ;$1.0M
3–5 y up to 2 y
Unspecified #$50K
based on the quality and impression of the management team than they do based on the technology. If a management team does not “wow” an investor audience with their skills, experience, and most importantly, their passion, their chance to take a great technical discovery to the marketplace drops precipitously. This is where the startup team can make or break the success of the company. You could easily end up at a dead end without having the right people. The last common error is a bitter pill to swallow. The business proposition at launch is rarely the winning proposition that succeeds in the end. Every start-up’s idea has to go through quite a bit of change before it matures into something that has customers open their wallets. This fact is why the management team is so critical. They have to recognize when these changes in the business proposition need to be made in order to keep advancing the company. Do not fall in love with something that cannot love you back. Every company’s funding path is unique. But these common funding mechanisms are employed by many successful ventures. Other funding mechanisms, such as crowdfunding (eg, Kickstarter campaigns), are emerging and being tested as a new source of funding for ventures. Regardless, many types of funding exist for the savvy entrepreneur. Know your company, have the right management team in place, be flexible and nimble, and refine, refine, and refine again your value proposition and investor pitch.
Gary F. Henry is the Principal Consultant of G F Henry and Associates, a management consulting firm based in Charlottesville, Virginia. Mr. Henry has more than 30 years of distinguished experience, including CEO, CFO and COO roles in both established and start-up companies. Gary was named an Ernst & Young Virginia Entrepreneur of the Year in 2001. (Surgery 2016;160:1135-8.)
THE GREATEST CHALLENGE an entrepreneur faces, next to developing a value proposition, is underwriting the enterprise. Entrepreneurs may easily spend half or more of their time fundraising. The primary role of a chief executive officer is to ensure the company is properly funded, and this is so demanding that contemporaneously advancing business goals while raising money is nearly impossible. Understanding various sources of cash and when and how to seek them is key to the success of a company. But first, define what your life goals are; if building a business to pass on to your children or to indulge a lifestyle is your desire, be very cautious about accepting money from other people: it comes at a price. Conversely, if you are building a business to see a profitable exit, raise money with that goal firmly in mind. Finally, ask yourself the key question: is this a true, standalone business, or am I better off teaming with an industry partner and licensing my technology? A number of years ago, it was easier to do early stage licensing deals, but nowadays the large strategics would rather pay more for a derisked technology that is showing traction in the marketplace and can fit seamlessly into their portfolio. STAGES OF FUNDING: MAKING THE DEAL A sensible and achievable business plan is critical. Raise money to fund activities that add value, securing intellectual property, proving concepts, and achieving other milestones. Raise as
Accepted for publication June 21, 2016. Reprint requests: Gary F. Henry, BSEE, GF Henry and Associates, 2989 Stony Point Road, Charlottesville, VA 22911. E-mail: [email protected]. 0039-6060/$ - see front matter Ó 2016 Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.surg.2016.06.056
much as you need but not too much; however, when money is available, it is usually sage to accept it. Define the runway you need and your personality is comfortable with. Basic funding stages include (1) seed money, (2) friends and family, (3) angel investors/family offices, (4) venture Capital (VC), (5) mezzanine financing (and bridge loans), and (6) initial public offering (IPO) or sale of all or part of the business to a private equity company. Not every start-up requires every stage, as some lucky entrepreneurs will exit early through a sale to a larger business. Many technology start-ups will also take advantage of nondilutive funds in the form of grants. SEED-STAGE FUNDING As the name implies, seed money launches the company. It is typically used to create and assess the team, define the initial concept, value proposition, intellectual property, potential market, scalability, and a business maturation plan (a high-level project plan from founding to exit often presented as a Gantt chart). Seed-stage capital is typically invested as a loan or in exchange for common stock. Seed money can come from the savings of the entrepreneur, credit cards, a home-equity line of credit or, commonly, friends and family---also known as “friends, family, and fools.” Self-funding or “boot strapping,” where the founder’s money alone is used, certainly focuses the mind and encourages others in your belief. ANGEL INVESTOR–STAGE FUNDING If with seed money you have defined and engaged target customers to validate your business model and mitigated any show-stopping issues, it might be time to pitch wealthy individuals referred to as angel investors. Individual angel investors typically invest in sums of $10,000, $25,000, SURGERY 1135
1136 Henry
$50,000, $100,000, or even more. Be sure that any investors you take on board are accredited: people who either have $1 million in liquid assets or make $200,000 annually. They are investors who the government considers wise and wealthy enough to decide whether to invest in high-risk start-up companies. Angels may be experienced investors, are often entrepreneurs themselves, and some may become valued advisors to your start-up. In some areas, angels may band into a network, which might invest in million dollar aliquots such as the Boston Common Angels or Bay Area Band of Angels. Family offices are investment professionals who manage the assets of the very wealthy. There are >500 billionaires in America and many more families with a net worth in the hundreds of millions, and many love to support life-science enterprises, especially if they address an area that has touched their life personally. Deal terms vary greatly, some angels can be as intimidating as VCs. Others might invest based on a simple, 2-page agreement. All investing relies more on the people than the technology, so focus on building good and trusting relationships. All transactions to purchase stock are driven by valuation; how much is each share of your company worth? The natural tendency is to set the bar high so that each investment dilutes your holding as little as possible, which is fine if all goes well; however, in the event of any delay to hit milestones, you might face a “down round,” where new stock is sold at a significant discount thereby rapidly diminishing the strength of your holding. Setting the price for stock either needs a sophisticated lead investor, like a VC or banker, or the parties may agree to do a “convertible note,” whereby invested money bears interest and can convert to stock at a later round where pricing occurs, usually with some bonus such as discounts on stock or additional warrants. Other benefits to investors, be they angels, family offices or VCs are so-called “preferred stock,” where they get interest on invested money and a multiple of return upon exit. Be careful with such deals---you may think you have given up 40% of your company in exchange for capitol, only to discover that you may end up with <10% of an exit deal! The Angel Resource Institute HALO report from Willamette University reported median national average angel round grew during 2015 to $725,000 in the third quarter (Q3), up 45 percent from 2015Q2. Angel valuations assigned to companies went from $2.5 million in 2015Q1 to a
Surgery November 2016
median of $5 million in 20153Q. Keep in mind that both size of investments and valuations are volatile and run in cycles just like the broad market. Valuations are, of course, highly subjective, but if someone pays $100,000 for 10 percent of a company, the company is, in theory, worth $1 million. With maturation, corporate valuation is repeatedly tested, adjusted, and confirmed by investors until it more accurately reflects realistic, risk-adjusted market value. But as noted above, percentages sold may be deceptive to the neophyte. For instance, an angel thinks your company is worth $1 million and agrees to invest $100,000. To calculate the angel’s ownership, one has to add how much the company is worth before new money comes in, the premoney valuation, and the investment: $1,000,000 premoney valuation + $100,000 angel investment = $1,100,000 postmoney valuation. Now divide the investment by the postmoney valuation $100,000/$1,100,000 = 1/11 = 9.091 percent. So the angel owns 9.091% and the prior owners are diluted by 1/11 or 9.091%. Even though your percentage of equity may be reduced through dilution, the value of your investment should be going up. A smaller slice of a much larger and growing pie is better than a larger slice of a small one. How do you find angel investors? Cold calling angel groups near you is an option, and expect to be thoroughly screened and vetted before a meeting. But angels, like most investors, will pay more attention to deals recommended by someone they know. Look for personal introductions if at all possible. While initial friends and family money gives latitude, angel and future VC rounds focus on the exit strategy of the company. The priorities of VC investors are a significant return on their investment and a timely exit. A sound philosophy is to include your most-valued employees in an employee incentive plan, eg, ESOP or profits interest, which ties them to you with a vesting schedule and allows them to share in success. VENTURE CAPITAL (VC)–STAGE FUNDING At your first opportunity, build a secure online data room so you are always prepared for any level of due diligence. With the right team on board, possessing the requisite skills, accounting and legal documents in order, and intellectual property qualified through a freedom-to-operate agreement
Surgery Volume 160, Number 5
confirmed by your patent attorney, you may be ready for a VC round. Venture capital firms invest other people’s (“limited partners”) money according to defined objectives such as target geography, technology or industry. Funds invest much larger amounts, typically >$500,000 and into the millions. The general partners of the venture firm are the fund managers and are paid by the investors of the fund, about 2 percent of a fund annually as a fee and about 20 percent of a fund’s gains as their “carry,” or share of the profits, aligning their incentives on making the best return in the shortest timeframe. Beware, dealing with VCs is challenging! The first VC investment is typically called the “series A” round. Subsequent rounds are similarly called “series B,” “series C,” and so on. With these larger investments, VCs are much more formal in their dealings than angels. Term sheets, which summarize the principal points of the deal, can be quite complex and due diligence is rigorous. The final agreements can be quite lengthy, and professional, legal advice is a must. Preferred terms for VCs are common and may include vetoes over major strategic decisions, protection against being diluted in future rounds, and the right to get their investment plus a return back first if the company is sold as noted above. In return for their money VCs demand control and receive, at the least, a seat on the board of directors and may want to take over your company at one extreme. The good ones will provide valuable guidance as part of the management and/or board and help you find potential acquirers for an exit. A WORD ABOUT NEGOTIATION Negotiation experience is of tremendous value; if your advisory or leadership team does not have it, consider adding this skillset. With both investors and acquirers, the greatest leverage is competition. If an investor knows you have other investors lined up, they will be a lot more eager to close---and not just due to concern about losing the deal. If other investors are interested in you, your enterprise must be worth investing in. It is the same with acquisitions. No one wants to buy a company until someone else wants to buy it. Then everyone wants to buy that company! The key to closing deals is to never stop pursuing alternatives. When an investor says he wants to invest in you, or an acquirer says they want to buy you, do not believe it until the check has cleared the bank. Your natural tendency when an investor says “yes” will be to relax and go back to building
Henry 1137
the company. Do not be tempted. You have to keep looking for more investors---if only to get your current investor to act. MEZZANINE FINANCING (BRIDGE LOANS) After VC series “A,” “B”, and/or “C” rounds, you may or may not have a mezzanine round, which is a type of bridge loan. At this point, you are either in revenue stage or are going to be soon. You are borrowing money just to get you ready, because you are anticipating one of the following types of opportunities that require additional funds: (1) an IPO, (2) private equity acquisition, (3) an acquisition of a competitor, or (4) a management buyout. To engage these opportunities, you may opt to tap into mezzanine financing. In the case of an IPO, mezzanine financing is often used 6 to 12 months before the IPO and then the proceeds of the IPO are used by the company to pay back the mezzanine financing investor. IPO Finally, companies can raise money through selling stock to the public in what is called an IPO. The opening stock price for the IPO is typically set with the help of investment bankers who commit to selling X number of the shares of the company at Y price, raising money for the company and, of course, they take a substantial cut. Unlike all other funding types, the stock price of the company is set by the public market of investors. Once the stock is out, it is traded through a stock exchange (like the National Association of Securities Dealers Automated Quotations System, the New York Stock Exchange, or the American Stock Exchange). An IPO requires an army of people to enact. To learn more about IPOs, check out any one of the many books found on the topic. GRANT FUNDING Nondilutive funding by grants fits at any of these stages and is attractive, because grants endorse the value of your science to investors, raise the enterprise value, and do not dilute your holding! It is possible to apply for and be awarded a grant anywhere from conception of the idea onward. Grants are offered from a variety of sources, including the Small Business Innovation Research (SBIR) program, the Small Business Technology Transfer (STTR) program, the National Institutes of Health (NIH), the National Science Foundation NSF (Table), and many more government and private sector sources. Awards are competitive and convey value beyond the
1138 Henry
Surgery November 2016
Table. Grant funding opportunities Grants SBIR phase I SBIR phase II SBIR phase III STTR phase I STTR phase II STTR phase III R01 NIH research project grant R03 NIH small grant
Source US Government, SBA US Government, SBA Private and non-SBIR allocated financing US Government, SBA US Government, SBA Private and non-SBIR allocated financing NIH NIH
cash. Consider attending a workshop on the type of grant you are considering or seek out experienced help. Also, advocacy health groups exist who will invest donated money, such as cancer and Alzheimer’s associations, etc. Their missions include directing donated money into research. In applicable cases, these special interest groups can be a source of grant funding as well. COMMON MISTAKES No matter the type of funding stage entrepreneurs finds themselves in, mistakes can derail the best intentions. The most common and deadly mistake is to have ignored customer input, or worse, not gotten any customer input on your fabulous invention at all. Savvy investors of any type always seek customer validation of the business proposition. The founders may think their innovation is the greatest creation since the Internet, but if customers are not wowed, the company has little value. Another common mistake is having an ineffective pitch. Entrepreneurs, starting from the creation of the company, should work continuously on refining their investment pitch and keeping it in sync with the accomplishments of the start-up and its growing understanding of the target market. The demand for refinement never stops. And its value should never be underestimated. If you do not succeed at raising serious interest from investors, your start-up dies. Seek high-quality advisors who have “been there, done that.” Having the wrong management team is also a common error. More funding pitches succeed
Duration
Amount
6 mo 1y
;$150K ;$1.0M
1y 2y
;$150K ;$1.0M
3–5 y up to 2 y
Unspecified #$50K
based on the quality and impression of the management team than they do based on the technology. If a management team does not “wow” an investor audience with their skills, experience, and most importantly, their passion, their chance to take a great technical discovery to the marketplace drops precipitously. This is where the startup team can make or break the success of the company. You could easily end up at a dead end without having the right people. The last common error is a bitter pill to swallow. The business proposition at launch is rarely the winning proposition that succeeds in the end. Every start-up’s idea has to go through quite a bit of change before it matures into something that has customers open their wallets. This fact is why the management team is so critical. They have to recognize when these changes in the business proposition need to be made in order to keep advancing the company. Do not fall in love with something that cannot love you back. Every company’s funding path is unique. But these common funding mechanisms are employed by many successful ventures. Other funding mechanisms, such as crowdfunding (eg, Kickstarter campaigns), are emerging and being tested as a new source of funding for ventures. Regardless, many types of funding exist for the savvy entrepreneur. Know your company, have the right management team in place, be flexible and nimble, and refine, refine, and refine again your value proposition and investor pitch.